(Yicai Global) Dec. 8 -- The Chinese bond market and mainland stocks are very attractive to international investors, The Paper reported today, citing an asset allocation fund manager at UBS Asset Management's China unit.

China's bond yields are superior to those of major global economies, Luo Di said. The interest rates of sovereign bonds, including those of the UK, the US and Canada, are mostly negative, while China’s are very high, he added.

Mainland stocks also have a lot of potential in terms of absolute valuation, compared with US, European and Japanese stocks, Luo said at the UBS Year Ahead Outlook for 2021.

When the Shanghai-Hong Kong Stock Connect mechanism, which allows investors in Hong Kong and on the mainland to trade shares on each other’s exchanges, was launched in 2014, the proportion of Chinese stocks held by foreign investors was about 2 percent, Luo said. This has now reached almost 5 percent, he added.

This shows that overseas investment in China's onshore market is gradually expanding and that foreign trading styles are having more of an influence on the operational logic of the country’s markets, he added.

The current valuation of mainland stocks is no longer low compared to the risk premium of 10-year Treasury bonds, he added.

There will be adjustments in Chinese stock holdings in the short term, depending on market valuations and future expectations, Luo said. But sectors of long-term strategic significance, such as consumption and other fields related to urbanization, will retain their long-term attraction.

UBS is optimistic about the long-term prospects of the new energy sector, Luo said. NEVs and charging infrastructure are part of government policy. The direction is determined, but the implementation of the policies will take time, he added.

Pharmaceutical stocks are at an all-time high, but investors should be cautious as their profit is forecast to be lower next year than this year, Luo said. There will still be companies that remain competitive in the long-term, but in the short term, the investment returns from pharmaceutical stocks remain to be seen.

Zurich-based UBS Asset Management’s China unit was one of the country's first wholly foreign-owned private equity fund firms. Set up in 2015, it manages assets of more than CNY2 billion (USD306 million). It released three bond products and four stock funds this year.

Editor: Kim Taylor